Attractive to European consumers and businesses, then they will supply more pounds and the Euro

In exchange markets in purchasing more American and Japanese computers, and the dollar and

Yen will appreciate. Conversely, if British tweeds, French cosmetics become more fashionable in

The United States and Japan, the demand for pounds and the Euro will increase, and the dollar and

Yen will depreciate.

b) Relative income changes. If the growth of a nation’s national income is more rapid than in

other countries, its currency is likely to depreciate. A country’s imports vary directly with its level

Of income.

c) Relative price changes. If the domestic price level rises rapidly, consumers will seek out relatively

Low-priced import goods, thereby increasing the demand for the appropriate FCC, and conversely.

This combination of an increase in the demand for and a reduction in the supply of freely

convertible currency will cause the nation’s currency to depreciate.

d) Relative real interest rates. Suppose the United States restricts the growth of its money supply

(tight money policy), as was the case in the late 1970s and early 1980s, in order to control inflation.

As a result, real interest rates — money interest rates adjusted for the rate of inflation — were high

In the United States in comparison to most other nations. Consequently, British, German, Japanese